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The Southern Company (SO) vs. Top 20 Hedge Fund Stocks in 2019

Asma UL Husna

Last year's fourth quarter was a rough one for investors and many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 41.1% in 2019 (through December 23) and outperformed the S&P 500 ETF by more than 10 percentage points. In this article we will study how hedge fund sentiment towards The Southern Company (NYSE:SO) changed during the third quarter and how the stock performed in comparison to hedge fund consensus stocks.

Is The Southern Company (NYSE:SO) going to take off soon? Hedge funds are becoming hopeful. The number of bullish hedge fund bets increased by 9 lately. Our calculations also showed that SO isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

[caption id="attachment_673876" align="aligncenter" width="473"] John Overdeck of Two Sigma Advisors[/caption]

John Overdeck of Two Sigma

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. With all of this in mind we're going to go over the latest hedge fund action regarding The Southern Company (NYSE:SO).

What have hedge funds been doing with The Southern Company (NYSE:SO)?

At Q3's end, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 41% from the previous quarter. On the other hand, there were a total of 24 hedge funds with a bullish position in SO a year ago. With hedgies' sentiment swirling, there exists a select group of notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies has the number one position in The Southern Company (NYSE:SO), worth close to $533.1 million, corresponding to 0.5% of its total 13F portfolio. On Renaissance Technologies's heels is Zimmer Partners, led by Stuart J. Zimmer, holding a $167 million position; the fund has 1.8% of its 13F portfolio invested in the stock. Other members of the smart money that hold long positions include John Overdeck and David Siegel's Two Sigma Advisors, Cliff Asness's AQR Capital Management and Steve Cohen's Point72 Asset Management. In terms of the portfolio weights assigned to each position Blackstart Capital allocated the biggest weight to The Southern Company (NYSE:SO), around 6.82% of its 13F portfolio. Centenus Global Management is also relatively very bullish on the stock, dishing out 2.57 percent of its 13F equity portfolio to SO.

As industrywide interest jumped, specific money managers were breaking ground themselves. Point72 Asset Management, managed by Steve Cohen, established the most outsized position in The Southern Company (NYSE:SO). Point72 Asset Management had $53.9 million invested in the company at the end of the quarter. Clint Carlson's Carlson Capital also initiated a $37.1 million position during the quarter. The following funds were also among the new SO investors: Brian Olson, Baehyun Sung, and Jamie Waters's Blackstart Capital, Sculptor Capital, and Donald Sussman's Paloma Partners.

Let's now take a look at hedge fund activity in other stocks similar to The Southern Company (NYSE:SO). We will take a look at Northrop Grumman Corporation (NYSE:NOC), ConocoPhillips Company (NYSE:COP), Colgate-Palmolive Company (NYSE:CL), and Equinor ASA (NYSE:EQNR). This group of stocks' market values resemble SO's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NOC,43,843083,6 COP,65,2901952,8 CL,42,2061209,0 EQNR,14,392283,1 Average,41,1549632,3.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 41 hedge funds with bullish positions and the average amount invested in these stocks was $1550 million. That figure was $1191 million in SO's case. ConocoPhillips Company (NYSE:COP) is the most popular stock in this table. On the other hand Equinor ASA (NYSE:EQNR) is the least popular one with only 14 bullish hedge fund positions. The Southern Company (NYSE:SO) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. A small number of hedge funds were also right about betting on SO as the stock returned 50.6% in 2019 through December 23rd and outperformed the market by an even larger margin. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

Disclosure: None. This article was originally published at Insider Monkey.

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